5 financial decisions for the New Year

These simple changes can add a significant thrust to your overall money management over time.

Did you know that nearly half of all New Year's resolutions involve improving finances? And, of course, most don't go through with their resolutions.

1. Do your tax planning

Start doing your tax planning and don't wait for the fag end of the financial year. If you do so, you will end up with products such as unit-linked insurance plans, or ULIPs, which you don't really need.

Consider an equity linked savings schemes, or ELSS, which are diversified equity funds that offer a tax benefit under Section 80C. It is also the only tax-saving instrument that offers the lowest lock-in period of just 3 years.

Having a Public Provident Fund, or PPF, is also a good option.

It is a rather undisputed fact that the PPF, is one of the most popular savings route in this country. A combination of the assured returns, the safety and the tax break make it a winner.

2. Offload your debt

In How to get out of a multiple loan debt trap (http://www.rediff.com/getahead/slide-show/slide-show-1-money-how-to-get-out-of-a-multiple-loan-debt-trap/20130625.htm), we gave some suggestions to our readers who are drowning in debt. Any debt that does not give you a tax break should be cleared.

So personal loans, home renovation loans, and auto loans should top the list. Education loans and home loans are the ones with a tax benefit.

If you have been running a huge debt on your credit card, clear it. At 2.5 per cent per month, it may appear deceptively manageable. Not so. It amounts to an eye-popping 30 per cent per annum. What's more, every fresh payment made on the card has this rate of interest levied on it. Not a good position to be in.

3. Consider international investing

When investors are told to diversify, they instantly think equity and debt. Some will even go a step further and look for a break-down within these categories. For instance, within equity they will attempt to diversify their investments across value and growth, along market cap differentiators, and along sectors and industries.

Within debt they will think of a combination of fixed return products as well as debt funds.

The more sophisticated and wealthier ones will move onto higher ground by contemplating along the lines of property, maybe even art and antiques.

Unfortunately, very few think of stepping outside one's geographical boundaries. By ignoring global investing, investors are side-stepping a fair amount of weaponry in their investing arsenal.

Did you know that over the 25-year time period from 1988 to 2012, there was not one single market that was the best performing over two consecutive years? Turkey was the best performing market in four years (out of 25!).

Those four years were spread out over a long time frame -- 1989, 1997, 1999, and 2012. Russia and Argentina were the best performing market twice each.

Here is the clincher: India never made it to the top performing market list over this entire period. That means, investors who never invest outside India are missing out on great returns.

Take a look at global funds, they are the most convenient way to invest abroad.

4. Get a life insurance policy

Life insurance needs keep changing.

The question of whether to buy insurance is not an investment question. The need to figure out whether a person needs to buy insurance comes much before evaluating investment alternatives. And, for altogether different reasons than are usually pitched by the salesmen.

The reason IS NOT because it is a safe investment.

Life insurance is bought to protect our families from the contingency of untimely death. It would take care of the living expenses of your family if you were to die unexpectedly.

Life insurance provides financial security to dependents. Term policies that cover the risk of untimely death are cheap and most ideal for providing life coverage.

Paying a premium to cover the full financial needs of the family in case of the death of the bread earner is very important. The cover should be for about 7 to 10 times the annual income of the bread-earner.

5. Don't be afraid to ask for help

Now that we have direct plans, which exclude distribution expenses and commissions, you could be tempted to completely bypass an adviser or distributor. Before you logically conclude that investing via a direct plan is the smarter way to go, hold on.

Even if you follow the strategic rules of thumb: prepare an asset allocation, diversify, and think long-term; there are thousands of schemes on offer from 44 asset management companies.

Are you capable of differentiating between all the schemes in the industry? Even so, you will need to put in time and effort to research and create a shortlist of schemes.

In many circumstances, it would help individuals a great deal if they approached an adviser. Sure, you will have to pay for his/her services, but a good financial adviser would add tremendous value to your investments.

You need an objective understanding of your risk profile and financial goals and unbiased advice.

Photograph: Burma Democratic Concern (BDC) New Year Resolution For 2015/Wikimedia Commons

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